Institutional investors abandon ETH, increase allocation to XRP and ADA

• According to the findings, 39 percent of the respondents agreed that Bitcoin has the most compelling growth outlook.

• According to the report, speculation which has been a key reason for digital asset investment has fallen since December 2021.

Ethereum (ETH), the second-largest crypto by market cap, had been the most preferred behind Bitcoin by institutional investors. However, a recent report by CoinShares, an asset fund manager based in the UK has disclosed that institutional investors have taken a step back on the digital asset as they increase allocation to DOT, ADA, and XRP at the expense of the second-largest cryptocurrency by market cap. 

Related: Cardano’s ADA climbs above XRP after 30% surge, rise propelled by a spike in network activity

Though the digital assets have shown signs of a rebound, the likes of Bitcoin, Ethereum, and Cardano have all lost over 40 percent of their value since the beginning of the year. Bitcoin has been on a constant decline since last year, however, the survey reveals that it is the most preferred among institutional investors.

Per the findings, 39 percent of the respondents agreed that Bitcoin has the most compelling growth outlook. This is a 3 percent increase from the previous survey. 

The report further stated that Bitcoin has established a very strong relationship with the traditional markets. The price movement of the growth market has also had a lot of influence on the Bitcoin market. 

One notable observation is that the leading crypto assets have been inversely correlated to the US dollar. 

Bitcoin now has a well-established inverse correlation to the US dollar. This makes sense due to its emerging store of value characteristics, but it also makes it incredibly sensitive to interest rates.

Bitcoin correlation with gold declines

Also, it was observed that the correlation Bitcoin has with gold has seen a drastic decline. Interestingly, its correlation with equities has risen significantly. The strength of the correlation was found in interest rate-sensitive equities like growth stocks according to James Butterfill, the Head of Research at CoinShares. He added that the current situation of the Bitcoin market is the perfect interpretation. This means rate hikes would be a great danger to non-yielding assets. 

Investors have increased weighting on digital assets from 0.5 percent to 1 percent as they look to add to positions during the price weakness. However, the weighting remains well below the 1.8 percent seen in November 2021.

It was also stated that though investors’ perception of altcoins has increased, they have not added to their positions due to access challenges. In addition, investors add to positions because of diversification which is said to be an important risk reduction strategy. According to the report, speculation which has been a key reason for digital asset investment has fallen since December 2021. This means most investors now see them as good value. 

Related: Bitcoin (BTC) shows a divergence from the U.S. stock market performance, is this a good sign?